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Thursday, 5 January 2023

Curiosity@Intelsense

 


In investing, I have grown to have a dual personality :-) In my first avatar, I keep looking for long term, quality, compounding stories that can give above average returns over very long periods. These tend to end up as the proverbial multibaggers after a few years.


In the second avatar, I look for returns from short cycles using quantitative models, technical analysis or special situations.


While hunting for the long-term growth stocks, I have come to realise that we need to, sometimes, give what I call breathing space to the businesses. Businesses cannot keep delivering high growth every quarter. It is not possible (well, maybe except for HDFC Bank, for the majority part of the last twenty-five years).


Chris Mayer, in his article, has put this rather well.

We all write our notes after the quarterly earnings come out and update our models and so on. But when you step back, you realize how little those things matter. In NVDA, as with any big winner, you see it in stark relief. All those little quarterly updates don’t matter very much at all. Businesses are organic. The numbers fluctuate. They are not machines. We have to allow for some volatility in results.

The idea is not to interrupt compounding unnecessarily when you have a good business run by a good management team.


The World Cup 2022 has come to an end. Messi, having won the last trophy that had kept him away from eternal greatness for so long, can walk away a happy man. In contrast, it also saw the fading away of another great player, Ronaldo, into a sort of ignominy. This article in The Atlantic captures the essential difference between the two great rivals well.

Ronaldo, 37, flailed because he couldn’t adapt to his physical decline. He insisted on playing as if he were 10 years younger. By acting as if he was essential, he became superfluous. And in his final game, a flaccid defeat to Morocco, he came off the bench, contributed little, then left the field in tears—without shaking hands with his opponents or consoling his bereft teammates. It was a pathetic way to exit, befitting a vain career.

That’s the counterpoint to Messi’s victory. Without the legs to carry him, Messi economized his movements. Rather than pretending that he was a young man, he played like an older one. He ambled through games, saving himself for the moments that he could assert himself. He showed a remarkable awareness about how he might be able to parcel out his dwindling corporeal self, how he needed to make choices about when to give himself fully.

Thought of the Week

When we suffer setbacks, disturbances or grief, let us never place the blame on others, but on our own attitudes.

~ The Art of Living by Epictetus

Investing is a microcosm of life itself. So, as in life and investing, the idea is to never blame others for the losses or drawdowns in the portfolio. Ultimately, it was our decision to buy or sell. Unless we take ownership of our own mistakes, we cannot take action to rectify the errors.

Video of the Week: Meet the Investor Who Made Bill Gates $50 Billion | A Michael Larson Documentary

SAVE
CROSS-POST

at January 05, 2023 No comments:
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Friday, 30 December 2022

2022 - A Year in Review

 

We are again at that time of the year when people don their thinking hats and reflect on the year gone by. As an investor, I find it very important to reduce my regular investment work and go back and think about what went right and what could be improved upon.


This last week, I actually was inspired by the “Think Week” ritual that Bill Gates used to have. Unlike Gates, I did not go off to a reclusive lake-side retreat all by myself. But I did reduce a lot of my regular work and went back to my pen and diary (sometimes OneNote journal) to look back and also to look forward.


2022 - The year gone by:

Some of the memorable events during the year which we will probably remember for some time were:
  • Start of the Russia-Ukraine war.
  • As per the IMF projections, India surpassed the UK to become the fifth-largest economy.
  • The world population reached 8 billion on November 15, with India being the largest contributor to the milestone, according to the United Nations (UN). India added 177 million to the final score.
  • After a legal battle, Elon Musk finally bought Twitter for $44 billion.
  • Sri Lanka had a major economic crisis precipitated by Covid.
  • Former Tata Sons Chairman Cyrus Mistry passed away in a car crash in Palghar.
  • Rahul Bajaj, the chairman emeritus of the Indian conglomerate Bajaj Group, passed away. He was awarded the third-highest civilian award in India, the Padma Bhushan, in 2001.
  • Passing away of Queen Elizabeth II, the longest-serving British monarch.
  • Covid continued to rear its head from time to time and now is seeing an increase in some countries like China, which has done a 360-degree turnaround from a zero-Covid policy to a completely open policy in a matter of days.


Investing in 2022

This year was gruelling. Stocks went up and then came back time and again. So much so that most of them were flat by the year's end. Making money was difficult. Sometimes, when you do a retrospective analysis, it is difficult to figure out how tough it was, because you tend to ignore the intermediate drawdowns thinking you would have held on during them. Also, some feel that since you have “good quality” stocks, it is better to hold on to them, because they eventually come back up. This may not be always true, at least in the timeframe you are looking at. Sometimes, stocks of even great companies take years and even decades to reach their previous highs. One must always be cognizant of the opportunity cost of alternatives while investing.


2023 - What lies in store?

India is looking to be on a relatively strong wicket. After nearly a decade, banks have cleaned up their balance sheets and overall credit growth is picking up. The credit growth of banks is at a 10-year high of 17.5%.


With just one more full budget before the 2024 elections, the expectation of a growth-led budget is high. Strong investment capex and social policies leading to incremental buying power for the masses augur well for consumer-facing companies. Government capex is at an 18-year high at 2.5% of GDP in 1HFY23. The PLI scheme-led investment is leading private capex. Just the trio of Tata, Ambani and Adani groups are planning an investment of $215bn in the next 5 yrs.


The really big investments are happening in the transition sectors: green energy, EV, 5G and tech/digital. This tailwind is being supported by the realignment of global supply chains – China+1, friendshoring etc.


We are likely to see a peaking of inflation and stabilisation of interest rates, but inflation will not cool off easily. The big components of inflation in India have historically been oil and food. How oil prices behave is anybody’s guess but food inflation is not likely to come down much going by history. In addition, with China back in the global economy, there is expected to be significant demand for oil, metals and other commodities. Chinese markets have probably already bottomed out since we discussed this during the middle of the year.


What should we do?

Markets are likely to remain choppy atleast in H1FY24. Domestic consumption and capex-oriented plays are likely to perform better. Sectors like engineering, capital goods, infrastructure, real estate and autos are likely to remain at the forefront.


Select IT and pharma companies can be identified and added slowly into the portfolio.


It is likely to continue to be a buy-on-dips kind of market for the next 2-3 yrs. It is better to continue sipping into the portfolio stocks or adding capital to your portfolio every month.

Now is not the time to be afraid. It is the time to ignore the noise and silently accumulate.

at December 30, 2022 No comments:
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Wednesday, 28 December 2022

Year End Investor Session - Recording

Last evening, I had a short session to discuss the current market situation and what we expect for 2023.

Here is the recording:



at December 28, 2022 No comments:
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Thursday, 8 December 2022

Curiosity@Intelsense

 

Multidisciplinary learning is one of the best ways to improve our investment acumen. Here is a summary of some of the best learnings of the week.

This week I want to talk about CBDC.
 
CBDC is short for Central Bank Digital Currency. It is, as the name suggests, a digital form of currency issued by the central bank RBI. It is distinct from UPI, IMPS, NEFT and RTGS as these are not currencies but payment and money transfer mechanisms. In these payment mechanisms, money gets transferred from one bank account to another. While in CBDC that RBI has recently launched as a pilot, money will move from one digital (e.g. mobile) wallet to another digital wallet without going through the banks of either of the two transacting parties. In a sense, it is like giving cash in your wallet to a friend. Neither of your banks gets to know but money has moved from one person to the other.
 
The idea of CBDC or e₹-R is to make it a digital form of cash and it will be available in the same denominations as cash and it will be first distributed through banks.
 
Users will be able to transact with e₹-R through a digital wallet offered by the banks and stored on mobile phones and devices. Transactions can be both person-to-person (P2P) and person-to-merchant (P2M). Payments to merchants can be made using QR codes displayed at merchant locations. As per the RBI, “The e₹-R would offer features of physical cash like trust, safety and settlement finality. As in the case of cash, it will not earn any interest and can be converted to other forms of money, like deposits with banks”.
 
There are some benefits to e₹-R. It drastically reduces the cost of banknote printing and circulation. It also reduces the cost of transfers and remittances by cutting down on multiple intermediaries. Another important feature is that as it is issued directly by RBI, it will be a liability on the central bank’s balance sheet and not earn any interest for the end user.
 
The way it is currently structured, as an end-user, I find it indistinguishable from the systems we currently use. To me, it looks a lot like a solution in search of a problem. Maybe I am ignorant, or some use case will appear in the future that will make this a grand success, but for now, I can’t find a single compelling reason why I would prefer using e₹-R over the existing system already in place. I will keep tabs on this and keep updating you from time to time as and when something progresses.
Thought of the Week:
“What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention, and a need to allocate that attention efficiently among the overabundance of information sources that might consume it.” ~ Herbert Simon
 
We need to be very very selective about how we filter information. Putting here a chat with a friend who is himself an extremely accomplished and disciplined investor. The idea is to use humans and AI to curate and suggest what you want to read, listen to or watch. Secondly, we need to be ruthless about protecting our time and attention. I used to feel very guilty about leaving a book or movie midway. Now I don’t care. If the subject does not intrigue me, then I am out.
How to filter your inputs
How to filter your inputs
Video of the Week: How Amancio Ortega Created the Zara Empire
How Amancio Ortega Created the Zara Empire
How Amancio Ortega Created the Zara Empire
Insights@Intelsense
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at December 08, 2022 No comments:
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